Monday, June 25, 2012

Stocks dive as Spain seeks help for banks - USA Today

In Europe, Spain formally asked for help to rescue the country's ailing banks, but its request left many questions unanswered, including how much it needs of the $125 billion loan package offered by other European governments. The uncertainty unsettled markets, pushing borrowing costs higher for Spain's government. Spain's stock market plunged 3.7%.

"Right now it's all about Europe, and confidence is pretty low," said Doug Cote, chief market strategist for ING Investment Management. "The policies that they proposing are too little too late."

The dollar and Treasury prices rose as investors shifted money into low-risk investments. The euro fell as traders worries that a two-day summit of European leaders at the end of this week won't produce a credible solution to Spain's banking crisis.

Bank stocks were especially weak. Investors fear those stocks would be the first to feel the impact of a freeze-up in Europe's financial system if Spain isn't able to convince markets that it can rescue its tottering banks.

Analysts worry that Europe's piecemeal approach to its spreading government debt crises may fall short, and the banking system of a large country like Spain could collapse. That could shock tightly connected global financial markets.

"It's the same headline risk that we've been dealing with for God knows how long," said Chip Cobb, senior vice president of Bryn Mawr Trust Asset Management in Pennsylvania. "Everybody wants something to happen sooner or later, and nothing's happening."

The leaders of the 27 countries in the European Union meet Thursday and Friday in Brussels for another summit aimed at reining in the crisis, but market players remain skeptical that Germany will sign off on efforts to quell the crisis. As the region's largest and strongest economy, Germany has to participate for any plan to work.

"What the market wants is action," Cote said. He said investors wanted to see steps toward binding the weak and stronger economies closer together.

Energy stocks were also big losers after the price of crude oil fell again. Crude lost 47 cents a barrel to $79.29, continuing a slump that has brought the price down from $110 in late February. Exxon Mobil (XOM) fell 87 cents to $81.24.

Energy prices have been falling as traders anticipate that slower growth in China and the lingering government debt crisis in Europe will drag down global economic growth and decrease demand for energy.

Spain isn't saying how much of the €100 billion made available by the European Union that it will need. The request comes just ahead of a critical European economic summit in Brussels.

European markets closed sharply lower. Stocks fell 4% in Italy and 2% in both France and Germany. Shares of European banks including Spain's Banco Santander and Deutsche Bank sank.

Borrowing costs rose for Spain and Italy, a sign of skepticism that those countries will be able to pay their debts. The yield on Spain's 10-year government bond rose 0.16 percentage point to 6.58%. That's dangerously close to the 7% level past which Greece and Portugal had to seek emergency loans from their European neighbors when their borrowing costs stayed above that level.